One of the more interesting numbers released by Defence this year was the size of its external workforce, which the department is now measuring through a biannual census. The total number is 28,632 ^[1] full-time equivalent workers. If we regard those people as Defence’s fifth ‘service’, it would easily be its second biggest, just behind the army at 30,000 and well ahead of the public service at 16,000.

In one sense, the size of this fifth service shouldn’t be surprising as it’s the result of several broad movements affecting Defence over the past three or four decades. The first was the selling off of government-owned defence industries. The second was successive governments’ efforts over the past decade to reduce the number of public servants in Defence. That hit Defence’s Capability Acquisition and Sustainment Group particularly hard as it fell from 6,000 to 3,660 Australian public service staff. And the third is the growing size and complexity of Defence’s acquisition and sustainment programs that require skilled workers to administer and deliver. In short, there is a lot more work and fewer people inside Defence to do it.

I collated data around this phenomenon in part 2 ^[2] of this year’s The cost of defence. In this post I’ll look at some of the numbers. In the next, I’ll look at what, if anything, we should do about it.

The first of three categories ^[3] of external workers are consultants, whom Defence defines as people who ‘carry out defined research, reviews or evaluations or provide independent advice, information or creative solutions’. Despite stereotypes of Canberra being overrun by overpaid consultants who borrow your watch to tell you the time, they make up less than 1% of Defence’s external workforce.

The largest category are the 21,000 who deliver services on a long-term basis with ‘skills or expertise that are not required to be maintained by APS or ADF in Defence’. Think of employees of companies providing base services such as messes and cleaning, performing deeper maintenance on aircraft or staffing IT helpdesks.

Despite the size of that category, it’s relatively uncontroversial. There’s little appetite in either the government or Defence to bring those functions back inside the department. The Middle East wars of the past two decades have shown that industry can deliver support even on deployed operations. There’ll always be debate about which maintenance functions frontline ADF units need to be able to perform themselves, and there’s still considerable nostalgia for the traditional military mess, but we aren’t going to fundamentally reverse course here.

The area where there’s a greater need for scrutiny is in the final category: the 6,567 contractors, people ‘engaged by Defence under a contract for skills that would normally be maintained in the Australian Public Service (APS) or Australian Defence Force (ADF) workforce … to perform day-to-day duties of Defence’. So those are mainly people working ‘above the line’ ^[4]—that is, working on behalf of the Commonwealth to run projects and activities—as opposed to people working ‘below the line’ delivering services and products to those projects. The largest subcategory is project management,  with 2,311 people.

While those may be skills that are ‘normally’ maintained in the APS or ADF workforce, Defence doesn’t have the people anymore. So it’s had to find them outside. With its demand for skilled professionals growing and its own workforce unable to meet that demand, in 2018 Defence established a support services panel ^[5] to ‘provide a more strategically managed ^[6] approach to the engagement and management of above the line services’. The panel consists of four major service providers and was meant to provide ‘greater visibility and control over market engagement and service delivery’.

Hopefully it has provided that visibility to Defence, but it hasn’t to the public and parliament. It’s hard to say from the outside how much that skilled on-demand workforce is costing Defence. Last year Defence signed contracts worth $2.17 billion for various kinds of professional services, according to AusTender, which reports Commonwealth contracts valued at over $100,000. But we can’t really tell from AusTender how much of, say, the $662 million in ‘professional engineering services’ contracts that Defence signed was above or below the line.

We can see, however, that the four major service providers have certainly received big contracts—like Downer’s $170 million contract described as ‘Major Service Provider to CASG—Enterprise Support Service Agreement’, which sounds a lot like it’s above the line.

There are some big numbers there. But does that mean the Commonwealth isn’t getting value from them? By the simple metric of daily rates, it might appear that Defence is overpaying. At first blush, public servants appear to be more affordable. The top of the salary band for a someone at ‘Executive Level 1’, essentially an experienced professional such as a project manager, cost analyst or engineer who might supervise a small team, is $115,000 per year. If we convert that to a total cost to Defence (including things like sick leave and training) and divide by around 220 days, they are costing Defence around $800 per day. Anecdotally, the daily rate charged by service providers for those skills is much higher, around $1,500–2,000, and at times more.

I’ll look at whether we should be worried about this in my next piece.